Since the price rose, it is as if our consumer's income fell; therefore, we must give her back some income to remove the income effect. The first idea (expenditure compensation) is to give her enough money to enable her to purchase her original consumption bundle, at the new higher price for movies. This would place her on the green budget constraint shown to the right.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved